This month, we’ve upgraded our ratings on several diversified foreign stock funds, reestablished a small stake abroad following a multi-year hiatus, asserts Jack Bowers, editor of Fidelity Monitor & Insight.

Our absence from these funds has been driven by our view that U.S. stocks have provided a more attractive risk-return opportunity — and we’ve been right!

But nine months after the surprise Brexit vote, the environment for foreign stocks has improved. More sober minds are now seeing the trade opportunities that may spring from Britain’s departure from the EU.

More broadly, Europe’s economy is picking up steam. Euro stocks are also less expensive than our own, and their performance has picked up.

These developments, coupled with concerns that U.S. growth is not accelerating fast enough, have resulted in the dollar’s relative weakness. That’s giving Fidelity’s unhedged foreign funds an added performance boost.

While we believe that U.S. stocks remain the best long-term arena for the majority of your assets, some foreign exposure may help to reduce overall portfolio risk while providing solid returns.

For the past five years, Fidelity Overseas (FOSFX) and its related share classes have been expertly run by Vincent Montemaggiore.

We have preferred his fund to other foreign large-caps as a combination of methodical stock picking (turnover is a low 33%) and country allocations that have given him an ample performance lead over his peers.

Currently, Europe (66%) and Japan (20%) are the fund’s largest regional allocations, though there’s a smattering of developed countries. Country-wise, the U.K. dominates this fund with almost a quarter of fund assets.

The biggest surprise about this fund is this: Despite its small-cap focus and its foreign stock holdings, it is essentially no more risky than the S&P 500 (volatility is just 1.01 versus 1.00 for the market).

Meanwhile, given the primacy of U.S. stocks over other developed markets in recent years, Fidelity International Small Cap (FISMX) has trailed U.S. stocks by a significant margin over the past 1-, 3-and 5-years periods.

Of course, that’s an unfair comparison as fund manager Sam Chamovitz has been “fishing” in an altogether different pond.

On that score, his now three-year-old record is one where he’s decisively beaten his benchmark through shrewd security selection and by tilting the fund’s style bias towards value stocks throughout Europe (42%) and Japan (21%).

It should also be noted that about 12% of its billion-dollar asset base is in volatile emerging markets, making its risk management all the more impressive. Note: The fund has a 2%/90-day redemption fee.

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